As takeover battle nears end, what changes is Mindtree looking at?

It looks like the L&T-Mindtree takeover battle has reached its finale. The open offer, which was delayed by two weeks on account of Securities and Exchange Board of India (SEBI)’s approval, commenced on June 17.

Three L&T executives were appointed on Mindtree’s board along with two independent directors.

Subroto Bagchi, co-founder, Mindtree, is making an exit. With Bagchi’s exit, position of the other three founders becomes unclear.

The Mindtree board currently has eight board members according to the company’s 2018 corporate governance report. The executive board members were founders Krishnakumar Natarajan, Rostow Ravanan, NS Parthasarathy and Bagchi. The four independent directors were Apurva Purohit, Milind Sawarte, Akshaya Bhargava and Bijou Kurien.

While, the nature of the takeover was hostile, one wonders if the other three will choose not to stay, as the promoters’ attitude saw a definitive change.

Mindtree promoters were against the takeover bid even as L&T signed a definitive deal to buy 20.32 percent stake from VG Siddhartha and his coffee enterprise on March 18.

From describing the company as a ‘tree’ to describing L&T as people who had arrived with ‘bulldozers and saw chains, so that they can build a shopping mall in its place’, and from ‘pyaar and dil’ to ‘MeToo’, the Mindtree-L&T tug of war saw a dramatic war of words. Not a norm in a boardroom drama, experts would quip.

However, compared to March, when emotions were running high, it looks like promoters are willing to reach a compromise with the engineering behemoth. The change was reflected in the company’s decision, including appointment of three executives on the board.

Three L&T executives in Mindtree’s board, including L&T Chief Executive Officer (CEO) SN Subrahmanyan. In its FY19 financial, the company reiterated its commitment to continue the industry-leading growth and handling the L&T takeover in a way that will maximise shareholder value.

Ravanan and Natarajan, in a letter to stakeholders, said, “Towards the end of the financial year, we faced an unusual situation with Larsen & Toubro announcing an unsolicited bid to acquire majority equity control in Mindtree. The matter is pending regulatory approvals at the time of writing this letter. It may be a few weeks before we know how this finally shapes up. We would like to reiterate our commitment to handling this issue in a manner that maximizes value for all our stakeholders.”

Experts say that change is inevitable. L&T already has close to 30 percent stake in Mindtree through open market purchase and Siddhartha’s share. With the open offer coming to an end on June 28 (for a 31 percent stake), the L&T could have a comfortable majority if not the 66 percent it had aimed for.

Now, the question is what changes the takeover will bring. If L&T’s stake in Mindtree was to cross 51 percent, the company will not only be the majority shareholder, but also a Mindtree promoter. Mindtree promoters put together have close to 13 percent stake.

Will the current promoters be willing to continue then? L&T might let the current management continue at least for the time being to ensure smooth transition and to boost employee morale. But, it would definitely look at more synergies with its subsidiaries L&T Infotech and L&T Technology services.

However, until the open offer’s results are out, shareholders and institutional investors will have a lot to ponder over.